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Category Archives: Mergers and Acquisitions

Yuval Levin, in the 11/7 National Review, discusses the Cronyist Threat.

Sidebar: We know, we are behind on our reading. But it turns out to be even more important as the GOP now controls the levers of the federal government and even more of the states. End Sidebar.

We have not seen it on NRO but it is well worth the read. It is important to remember the basic point that conservatives support markets rather than businesses. We sometimes get confused about that because the left attacks both. We would like to quibble with one point Levin makes. He says that conservatives should champion a revival of antitrust enforcement. It is also in the first half of his practical implications section. Placement does not necessarily mean priority but it usually does.

We are not so sanguine about the usefulness of antitrust enforcement as an appropriate response of a limited government in a free economy. It is not that we couldn’t get behind some antitrust actions like fighting the taxi cartel. The problem is, however, antitrust actions are going to be about defining industries when industries are very fluid. Competition, like Netflix and TV networks, can come from a wide variety of sources. We don’t see that emphasizing antitrust enforcement, especially given the set of folks that are already there, is going to be effective in reaching conservative goals. Rather, it would mean more uncertainty about the relationship between business and government.

Otherwise, every GOP person in government should be attending to what Levin says. We are not optimistic but we hope enough do. Picking a different set of winners then the left does does not make us significantly different from them. Markets make us free.

As expected, Obamacare is imploding. In Wisconsin we are choosing between Ron and Russ for the Senate. Russ voted for it and we voted him out. Why on earth would we want him back at this serious point in time.

Grave damage is being done to our nation’s health care system by this law that President Obama and Democrats in Congress pushed through on a strictly partisan basis. Americans are being harmed now by the law and losing their freedom. Their livelihoods and their economic security are being put in jeopardy and the health insurance plans that they are now required to buy may not even meet the needs of their families. If we continue on this path, the future of our health care system is rationed, lower quality care, increased medical costs and severe limits on medical innovation.

So are you going to go with Russ and proven failure (motto: let’s throw enormous amounts of taxpayer money at the problem to show we are at work) or be serious and go with Ron to work on health care legislation that might really be reform. It is, as they say, your choice.

Sidebar: The WSJ reports that Democrats like Elizabeth Warren are fighting the Aetna-Humana merger on the basis that:

“The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.”

The WSJ notes the gall on disclosure of information from Aetna but doesn’t really tie that the problems caused by the Democrats necessitate the merger so Aetna can survive Obamacare. End sidebar

The current administration continues to astonish us. We hope they get their head handed to them again in court for their attempt to re-write the law administratively, this time on on mergers. Pfizer’s CEO Ian Read put it like this in the WSJ:

The U.S. tax code has among the highest rates in the Western world and forces its multinationals to pay U.S. tax on income earned abroad if they want to bring it back to this country.

This puts Pfizer at a disadvantage so they want to merge with Allergan, an Irish company, to reduce their tax disadvantage. These types of mergers, often referred to as inversions, have become a punching bag on the left. The Treasury Secretary, Jacob Lew took to the Washington Post to say:

To be clear, there is nothing wrong with cross-border merger activity; our economy is stronger for our investment overseas and for foreign investment in the United States. But these activities should be based on economic efficiency, not tax savings.

So rather than fix the problems with corporate taxes in the US (see the bold in the first quote) we try to outlaw the problems they cause after the fact. Seriously, we have a tax code that penalizes investing in the US. Don’t we want to fix that now? We hope that Pfizer fights the administrative fiat and wins and that Mr. Lew will have the common sense to resign in disgrace.

Friday Larry Kudlow had a great column entitled the Obama Bank Shakedown. It is useful but not great because he points out that:

These huge bank settlements are election-year ATMs for the Obama administration. It was $12 billion for JP Morgan, another $7 billion for Citigroup, and on and on. It’s a real shakedown.

In fact, no one even remotely knows how these penalty-payment numbers are calculated. And the federal government’s disbursement of these funds is equally mysterious. As the Wall Street Journal editorial page has pointed out, a lot of money has gone to states run by Democratic governors.

The article moves beyond useful when he hammers Obama on economic patriotism. Greg Mankiw joins in on the fund (and do read the whole thing) by recognizing that managers forgoing tax inversions are not meeting their primary responsibility to their shareholders and concludes, much like MWG (yes I have trouble with these links),

Corporate tax inversions aren’t the largest problem facing the nation, but they are a reminder that a better tax system is within reach, and that only politics stands in the way.

What makes Kudlow’s column great is that he calls the Republicans out. It is only a sentence but it is the crucial one: How will they respond? MWG would like to know why they have waited so long. The Obama led Democrats have come out against economic freedom. Are the Republicans going to argue for economic freedom or just keep quiet? Keeping quiet might be a political winner in November but it won’t lead to any improvements after the victory.

Bloomberg and many others have the numbers. A couple of days ago the New York Times sold the Boston Globe to Red Sox owner John Henry for $70 million. Twenty years earlier the purchase price was $1.1 billion. To add insult to injury, NYT picked up the pension liabilities reported by Bloomberg at $110 million but by others at $100 million. In short, it cost the NYT $30+ million to get rid of the Globe. At least when the Washington Post sold Newsweek they got a dollar. The America Online merger and spin-off with Time Warner (2000-2009) is larger and spectacularly unsuccessful but the NYT-Globe merger and divestiture is a rival.

Sidebar: This is probably one of those rare accounting mergers with a “Gain on Bargain Purchase.” John Henry will be recording a gain because it is reported that the real estate is worth the purchase price. With the major liability gone and because the assets must be recorded at fair value then it is likely that there is a gain on bargain purchase. The NYT has limited Goodwill to write off on the sale because it has already written off $805 million of the total $928 million in Goodwill as of 12/30/12 (Yes 12/30 is correct as the NYT fiscal year covers 52 or 53 weeks rather than a year).

It looks like a great deal for John Henry. If the Globe continues to sputter he can sell it or sell the parts. If it doesn’t then the purchase will be profitable. The way to profits are to move the Globe towards the center. Use the mirror image of the Wall Street Journal. The editorial page is right wing. The rest of the paper much closer to the middle. A left wing editorial page and a curious news page could be successful.